Rio agrees to China coal deal
Rio Tinto shareholders have agreed to sell its NSW coal assets to China-backed miner Yancoal for AU$3.5 billion.
Yancoal – which is ultimately owned by the Chinese Government - is buying Coal & Allied, the Rio subsidiary that controls NSW's Hunter Valley mines including the Warkworth/Mount Thorley thermal and semi-soft coking coal mines and a major stake in the Port Waratah coal loading facility in Newcastle.
The final figure is $4 million more than Glencore’s highest offer.
“Two years ago, you couldn't sell them — you couldn't give them away — and now all of a sudden, you're climbing over yourself to get them,” Glyn Lawcock, global head of mining equity research at UBS, told reporters.
“Long-term, China has always been interested in acquiring energy assets outside of the country,” J Capital's Tim Murray said.
“They've got a basic view of; ‘why not use someone else's resources before we use our own’.”
Although China has heavy renewable investments, the Yancoal-Rio deal is a sign that the world’s second largest economy does want to own significant coal assets.
Mr Lawcock said that under Yancoal ownership, the Hunter Valley coal mines will ramp up production.
“Clearly if you're going to spend over $2 billion buying something, you want to extract synergies,” he said.
“You want to maximise the revenue line as well — so yes, they'll be worked harder.”
Mr Murray said Rio Tinto is probably the biggest winner from this deal.
“Rio would be rubbing its hands together thinking; ‘Thank God I finally got rid of those crappy thermal coal assets’,” Mr Murray said.
“It's a great deal — if we can always sell our sort of crap assets, we need to recycle to Chinese SOEs (state-owned enterprises), why not?”